(i) Chaghamazot acquired an item of plant at a cost of N$800,000 on 1 April 2019 that...
Question:
(i) Chaghamazot acquired an item of plant at a cost of N$800,000 on 1 April 2019 that is used to produce and package pharmaceutical pills. The plant had an estimated residual value of N$50,000 and an estimated life of five years, neither of which has changed. Chaghamazot uses straight-line depreciation. On 31 March 2021, Chaghamazot was informed by a major customer (who buys products produced by the plant) that it would no longer be placing orders with Chaghamazot. Even before this information was known, Chaghamazot had been having difficulty finding work for this plant. It now estimates that net cash inflows earned from the plant for the next three years will be:
year ended: N$000
31 March 2022 220
31 March 2023 180
31 March 2024 170
On 31 March 2024, the plant is still expected to be sold for its estimated realizable value. Chaghamazot has confirmed that there is no market in which to sell the plant at 31 March 2021. Chaghamazot cost of capital is 10% and the following values should be used:
value of N$1 at: N$
end of year 1 0.91
end of year 2 0.83
end of year 3 0.75
(ii) Chaghamazot owned a 100% subsidiary, Mizbach that is treated as a cash generating unit. On 31 March 2021, there was an industrial accident (a gas explosion) that caused damage to some of Mizbach’s plant. The assets of Mizbach immediately before the accident were:
N$000
Goodwill 1,800
Patent 1,200
Factory building 4,000
Plant 3,500
Receivables and cash 1,500
12,000
As a result of the accident, the recoverable amount of Mizbach is N$6.7 million
The explosion destroyed (to the point of no further use) an item of plant that had a carrying amount of N$500,000.
Mizbach has an open offer from a competitor of N$1 million for its patent. The receivables and cash are already stated at their fair values less costs to sell (net realizable values).
Required:
Calculate the carrying amounts of the assets in (i) and (ii) above at 31 March 2021 after applying any impairment losses.
Calculations should be to the nearest N$1,000.
Automation Production Systems and Computer Integrated Manufacturing
ISBN: 978-0132393218
3rd edition
Authors: Mikell P.Groover